Advanced Micro: Headwinds Are Blowing

Advanced Micro Devices is expected to at least meet its second-quarter guidance Thursday -- but the third quarter could face headwinds.
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Advanced Micro Devices

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is expected to at least meet its guidance during its upcoming second-quarter report this Thursday after the market close -- but the company could face headwinds in the next quarter, according to analysts.

"We think it's actually in a pretty good spot this quarter and that they're going to follow


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lead with a strong earnings number, better gross and operating margins and better profitability, which should provide some positive momentum for stock following a decline to mid seven after getting closer to ten," Williams Financial analyst Cody Acree told



Meanwhile, Dunham Winoto, an analyst at Avian Securities, is also confident that the company will at least meet its guidance. "I'm not worried about Q2," Winoto said. "The story

is AMD is going to be pretty much the same." On average, equity analysts are predicting second quarter earnings of 6 cents on revenue of $1.55 billion.

Currently, there are six strong buy recommendations for the stock, two moderate buys, 13 holds, two moderate sells and four strong sells. While the company should pass second-quarter expectations with relative ease, analysts such as Winoto have some concerns about how the company will fare in the third quarter. "I think Q3 will face the same kind of challenges that Intel and the PC market is facing," Winoto said. "The PC market has been a little softer than the historical."

Many in the investment community are worried that after the second quarter, Advanced Micro Devices will begin to feel the pain of a weakening PC market due to the problems with Europe's economy and cooling in the Chinese economy. Winoto thinks China is doing fine, but remains concerned about the challenges that Europe is currently facing.

Williams Financial's Acree agrees that semiconductor companies like Advanced Micro Devices and Intel will be facing European headwinds, and sees Asia inventory buildups.

Still, Acree adds that "we don't know at what magnitude," the headwinds will hurt Advanced Micro Devices' subsequent quarters; he notes that these headwinds will be offset by corporate activity in the U.S., which means more enterprise spending on high gross margin products and "all of that drives profitability." Analysts are expecting third quarter earnings of 13 cents a share on revenue of $1.66 billion for Advanced Micro Devices.

For the first quarter, the company had reported net income of $63 million, compared with a loss of $189 million in the year-ago quarter. Earnings per share was 9 cents, beating the consensus estimate of 5 cents. Advanced Micro Devices had posted 12 straight quarterly losses until the fourth quarter and attributed the first quarter's success to an increase in PC sales and shipments and a strong product pipeline.

Advanced Micro Devices is trading3.9% higher at $7.65 in late Tuesday afternoon trading, while Intel is up 2% to $20.97.

-- Reported by Andrea Tse in New York

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